Is Microsoft Biting Its Own Hand with Windows Live?

Microsoft announced yesterday that it would empower its Windows Live portal with social networking features starting sometime next year. With Windows Live getting more social, 283 million Hotmail users are prone to become part of the world's largest social network. But has Microsoft forgotten the huge investments it made in Facebook?

In a social network-like context, Microsoft's Spaces, Windows Live Hotmail and Windows Live Messenger will be able to communicate with each other, allowing users to keep in touch, just like Facebook does to some extent, but in separate applications. This new convergence has a massive potential to overtake in popularity Facebook, in which Microsoft already invested $240 million last year.

In October 2007 Microsoft invested in Facebook $240 million in exchange for 1.6 percent of the company, allowing the Redmond giant to sell Internet ads on Facebook, not only in the US but also overseas. Google was also interested in advertising with Facebook and Yahoo failed to take over Facebook for $1 billion, after the company was evaluated at $15 billion.

But why would Microsoft go head to head with a company in which it invested so much money?

Well, Facebook's CEO Mark Zuckerberg at the Web 2.0 summit in San Francisco gave the Answer last week. Zuckerberg said at the summit that his company's top priority is growth and that they're not focused on revenue.

Zuckerberg's incendiary comments might have raised a few eyebrows among executives at Microsoft and the Windows Live social network could just be their answer to that. And quite rightfully, the Windows Live services convergence stands a big chance of potentially becoming a massive social network. As a quick reference, Windows Live Hotmail has over 283 million users while Facebook announced earlier this year that it had just over 100 million users. By comparison, the combined numbers of users form the world's top five social networks are of 370 million.

Given the numbers, it's understandable why Microsoft is dipping its toes into the social networking pool, as it would be easier to adapt its existent services and also keep its huge user base rather than starting from scratch. And given Zuckerberg's plans for the future of Facebook, Microsoft seems to prefer to make its own money rather than rely on Facebook's imprecise business model.

But hopefully, by the time (and if) Microsoft's social network picks up momentum, the money they invested in Facebook will pay off through advertising revenue. If not, they would just be biting their own hand...